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The Chaikin Oscillator is another moving average oscillator based on the Accumulation/Distribution volume indicator. Sometimes, a divergence between volume and price give traders forewarning of a sudden market reversal. The Chaikin Oscillator differs from other volume oscillators because it substitutes the average price of the day for the opening price. If a stock closes above the day's midpoint ( i.e. (high + low) / 2), then there was more accumulation than distribution. The closer a stock closes to the high, the more accumulation there was, and vice versa. Next, you have to accept that strong rallies need rising volume (i.e. good accumulation). Without that volume, the rallies has no depth. Declines, on the other hand, are usually accompanied by low volume, because 'hope' tends to make investors hang on far longer than they should. When a volume increase occurs, it usually indicates panic selling, and may thus mark the end of the decline. The inventor favored a price envelope around a 21-day moving average plus an overbought/oversold oscillator to back up the signals of the Chaikin Oscillator, and commented that signals in the direction of the intermediate-term trend are more reliable than those against the trend. If you are Day trading, and believe that the future can be predicted, then it may be of some use to you, although SureFireThing Camarilla Equation users tend to have no opinion on market direction, simply trading the move whichever way it goes. To calculate it, subtract a 10-period exponential moving average of the Accumulation/Distribution Line from a 3-period exponential moving average of the Accumulation/Distribution Line. |
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